AYRTON DRUG MANUFACTURING LIMITED

Transcription

1 AYRTON DRUG MANUFACTURING LIMITED FINANCIAL STATEMENTS 30 JUNE 2017

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3 Financial Statements - June 2017 CONTENTS Board Of Directors 4 Notice Of Meeting 5 General Information 6 Chairman s Review 7 Report Of The Directors 9 Independent Auditors Report To The Members Of Ayrton Drug Manufacturing Limited 12 Financial Statements 16 Statement Of Financial Position As At 30 June Statement Of Profit Or Loss And Other Comprehensive Income For The Year Ended 30 June Statement Of Changes In Equity For The Year Ended 30 June Statement Of Cash Flows For The Year Ended 30 June Notes To The Financial Statements For The Year Ended 30 June Supplementary Information For The Year Ended 30 June Supplementary Information For The Year Ended 30 June Proxy Form 47 3

4 AYRTON DRUG BOARD OF DIRECTORS Richard Adu-Poku Daniel Apeagyei Kissi Nik Amarteifio Yaw Opare-Asamoah 4

5 Financial Statements - June 2017 NOTICE OF MEETING NOTICE IS HEREBY GIVEN that the 12th Annual General Meeting of Ayrton Drug Manufacturing Limited will be held at the Osu Ebenezer Presbyterian Church Hall, Accra on WEDNESDAY 21 ST February 2018 at 10:00am prompt. AGENDA 1. To receive the Chairman s review, the Reports of the Directors and Auditors and the Financial Statements for the year ended 30 th June, To accept the resignation of two Directors. 3. To appoint two Directors. 4. To approve Director s remuneration. 5. To appoint Ernst & Young as Auditors for the period of 1 st July 2017 to 30 th June To authorize the Directors to determine the remuneration of Auditors for the period of 1 st July 2017 to 30 th June Update on the Merger of Ayrton Drug Manufacturing Limited, Dannex Limited and Starwin Pharmaceuticals Limited. 7 TH December 2017 ORDER OF THE BOARD OPOKU AMPONSAH (SECRETARY) 5

6 AYRTON DRUG GENERAL INFORMATION DIRECTORS: Mr. Richard Adu-Poku Mr. Daniel Apeagyei Kissi Mr. Mohamed Mangel - Resigned on 28 November 2016 Mr. Tobie Krige - Resigned on 28 November 2016 Mr. Nik Amarteifio Mr. Yaw Opare Asamoah SECRETARY: Mr. Opoku Amponsah - Pending ratification - Pending ratification AUDITORS: Ernst & Young Chartered Accountants REGISTERED OFFICE: B1/24 Abeka Road - Tesano P. O. Box 2149 Accra REGISTRAR: NTHC Limited Martco House Okai Mensah Link Off Kwame Nkrumah Avenue G15, White Avenue Airport Residential Area P. O. Box KA Airport Accra BANKERS: Ghana Commercial Bank Limited Ecobank Ghana Limited Stanbic Bank P. O. Box KIA 9563 Airport, Accra 6

7 Financial Statements - June 2017 CHAIRMAN S REVIEW OPENING REMARKS Distinguished shareholders, on behalf of the Board of Directors and on my own behalf it is a pleasure to welcome you to the 2017 Annual General Meeting of AYRTON DRUG MANUFACTURING LIMITED. We hereby present to you the Annual Report and Financial Statements of your company for the financial year ended 30th June, This year we have consolidated and aligned our operations with our parent company, DANNEX LIMITED. Many important changes in management and strategies have taken place to ensure that our company regains its competitiveness. With your continued support, we would turn the page onto a new horizon. The company recorded a decrease in Turnover from GHS 38,772,241 in 2016 to GHS 35,016,640 in That is a rate of 9.69%. Profit before Tax in 2017 was GHS 3,267,919 compared to GHS 3,243,763, in Net profit for 2016 was GHS 2,598,241 as compared to GHS 2,285,975 recorded in DIVIDEND The directors did not recommend the payment of any dividend during the year CORPORATE GOVERNANCE Corporate Governance is a key factor for us at AYRTON DRUG as a going concern. We believe that the long history as a reputable public entity has been possible because the business has been built on transparency. We always put the interest of our wider stakeholders (suppliers, employees, regulatory bodies and owners) at the forefront for every decision we make. The company complies with all statutory requirements and has put in place a system to protect the environment, company assets and all its stakeholders. The company continues to apply a sound operational control system in order to safeguard the interest of shareholders. Furthermore, the company has adopted standard accounting practices that facilitates transparency in the disclosure of information and the reliability of the financial statements. We strongly believe that the success of the company depends on the effectiveness of the members of the Board. Therefore in accordance with the regulations of the company and the Ghana Stock Exchange, all the Directors with the exception of the Managing Director go through an annual reelection at the Annual General Meeting. This ensures that we constantly have the right set of skills and leadership forming our Board. All the Directors are independent and free of any internal or external stakeholders influence. In order to ensure effective control over the operations and structure of the business, the Board has an Audit Committee. AUDIT COMMITTEE All board members belong to the Audit Committee which was chaired by a member other than the Chairman of the Board. The terms of reference and the scope of the Audit Committee s functions include the following: To recommend the appointment of the external auditors of the company. To liaise with the external auditors for the purposes of ensuring and maintaining audit quality, effectiveness and risk management. To review with the auditors their report on the financial statements of the company. To review the adequacy of the systems of internal control and of the degree of compliance with material policies, laws and code of ethics and business practices of the company. To provide a direct channel of communication between the Board and the external and internal auditors, Chief Financial Officer and compliance officers of the company. To report to the Board of Directors of developing policies that will enhance the control and operating systems of the company. 7

8 AYRTON DRUG CHAIRMAN S REVIEW (CONTINUED) The Audit Committee met regularly during 2016/2017 financial year as part of the continuous process of meeting its responsibilities detailed above. The Audit Committee was involved in monitoring the work of the internal audit department and carried out Safety, Health and Environment Audit as well over the period. REMUNERATION COMMITTEE All Board Members belong to this committee. However, they are required to exclude themselves from deliberations concerning their own remuneration. The terms of the Remuneration Committee s functions include the following: Establishing a formal and transparent procedure for developing Policy of Executive Remuneration. Ensuring that a proper system of short and long-term compensation is in place to provide performance oriented incentives to management. In order to fulfill its responsibilities, the Remuneration Committee held its scheduled meeting in the 2016/2017 financial year. became Chairman of Starwin Products Limited in 2015 MBA in Finance & Marketing, Harvard Business School and BSc in Economics, Wesleyan University Yaw Opare-Asamoah Over 15 years pharmaceutical experience with expertise in operations, strategic acquisition, restructuring, etc. MBA in international business & global markets, University of Birmingham Business School and BSc in Banking & Finance, University of Ghana Managing Director of Dannex since 2008 and MD of Starwin from 2016 Has won several awards including 40 under 40 award. The board recommends the approval of both nomination. DIRECTORS Pursuiat to the aquisition of the majority of shares of Adcock Ingram in Ayrton by Dannex Limited, the two representatives of Adcock in Ayrton resigned. To ensure that the the board would have a quorum, the new majority owner - Dannex Limited nominate Mr. Nik Amarteifio and Mr. Yaw Opare Asamoah to the Board pending ratification by shareholders at this AGM. Nik Amarteifio Chairman & majority shareholder of investment vehicle Equatorial Cross Acquisition Limited ( ECA ) ECA owns pharmaceutical, mining, real estate, telecommunication, oil & gas and other interests Vice Chairman, Ghana Agro Foods Company Have been affiliated with Dannex since He 8

9 Financial Statements - June 2017 REPORT OF THE DIRECTORS TO THE MEMBERS OF AYRTON DRUG MANUFACTURING LIMITED The Directors present their report and audited financial statements for the year ended 30 June Principal activities The principal activity of the company is to manufacture as well as import and supply pharmaceutical products in West Africa. Statement of directors responsibilities The Companies Act, 1963 (Act 179) requires the directors to prepare financial statements for each financial period, which give a true and fair view of the state of affairs of the company and of the profit or loss for that period. In preparing the financial statements, the Directors confirm that suitable accounting policies have been used and applied consistently, and reasonable and prudent judgment and estimates have been made in the preparation of the financial statements for the year ended 30 June The directors confirm that the financial statements have been prepared on a going concern basis. The directors are responsible for ensuring that the company keeps accounting records which disclose with reasonable accuracy the financial position and performance of the company and which enable them to ensure that the financial statements are in accordance with International Financial Reporting Standards and in a manner required by the Companies Act, 1963 (Act 179). They are also responsible for safeguarding the assets of the company and hence for taking steps for the prevention and detection of fraud and other irregularities. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Dividend The directors did not recommend the payment of any dividend during the year. 9

10 AYRTON DRUG REPORT OF THE DIRECTORS TO THE MEMBERS OF AYRTON DRUG MANUFACTURING LIMITED FOR THE YEAR ENDED 30 JUNE 2017 (CONTINUED) Results from operations 30/06/ /06/2016 % Turnover 35,016,640 38,772,241 (9.69) Operating profit 4,474,028 5,458,945 (18.04) Profit before tax 3,267,919 3,243, Net profit attributable to members 2,285,975 2,598,241 (12.02) Operating cash (used)/flow (347,700) 3,642,562 (109.55) Capital expenditure 996, , Earnings per share (0.08) Shareholders Funds 17,773,978 15,488, Net assets per share Profit before tax margin (%) 9.33% 8.37% Net profit margin (%) 6.53% 6.70% The statement of financial position has been signed by two directors indicating the board s approval of the financial statements. Board of directors The directors holding office now are: Mr. Richard Adu-Poku Mr. Daniel Apeagyei Kissi Mr. Yaw Opare-Asamoah - Pending ratification Mr. Nik Amarteifio Pending ratification None of the directors own shares in Ayrton Drug Manufacturing Limited. 10

11 Financial Statements - June 2017 REPORT OF THE DIRECTORS TO THE MEMBERS OF AYRTON DRUG MANUFACTURING LIMITED FOR THE YEAR ENDED 30 JUNE 2017 (CONTINUED) Plan merger Persuaint to the successful acquisition of majority shares in Ayrton Drug, Dannex Limited, the parent company has begun the legal process to merge with its subsidiaries into a single entity. This is the next stage after Dannex declared its intention to merge with the 2 companies after the acquisition of majority stake in ADML. Dannex waived its right to mandatory takeover over ADML. Dannex owns 53.47% of shares of Ayrton Drug Manufacturing Limited and 71.34% of Starwin Products Limited. Both companies are listed on the Ghana Stock Exchange. Dannex Limited is working with other major shareholders of ADML and SPL to proceed with the merger. Dannex limited sought and got initial consent to proceed with the legal merger from the Securities and Exchange Commission and the Ghana Stock Exchange. Independent consultants have been engaged to work on various parts of the process. The merger process is expected to be completed before the end of 2018 calendar year which is within the current financial year of ADML; after the necessary clearance from SEC and merger resolutions passed at an Extraordinary General Meeting of the members of ADML. Auditors The Auditors, Ernst & Young, Chartered Accountants, have indicated their willingness to continue in office as auditors pursuant to Section 134 (5) of the Companies Act, 1963 (Act 179). By order of the Board: Director Date: Director Date: 11

12 AYRTON DRUG INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF AYRTON DRUG MANUFACTURING LIMITED Opinion We have audited the financial statements of Ayrton Drug Manufacturing Limited as set out on pages 9 to 42 which comprise the statement of financial position as at 30 June 2017, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements present fairly, in all material respects, the financial position of Ayrton Drug Manufacturing Limited as at 30 June 2017, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act, 1963 (Act 179). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) and other independence requirements applicable to performing audits of Ayrton Drug Manufacturing Limited. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code, and in accordance with other ethical requirements applicable to performing the audit of Ayrton Drug Manufacturing Limited. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditors responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. 12

13 Financial Statements - June 2017 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF AYRTON DRUG MANUFACTURING LIMITED Key audit matter Impairment of trade accounts receivable Trade receivable balances were significant to the company as they represent 27% of total assets. The collectability of trade accounts receivable is a key element of Ayrton Drug Manufacturing Limited s working capital management, which is managed on an ongoing basis by management. Due to the nature of the business and requirements of customers, different credit terms and limits are set for customers which impact the level of provisions made on overdue trade accounts receivable. Given the magnitude and judgment involved in the provision for impairment and the collectability assessment of trade accounts receivable, existence and collectability of trade receivables was a key audit matter. Disclosures related to the age and impairment of trade accounts receivable and the company s accounting policies on impairment of financial assets have been disclosed in note 2 and 7 respectively. Other information The directors are responsible for the other information. The other information comprises the Directors Report as required by the Companies Act, 1963 (Act 179) which we obtained prior to the date of this report, and the Annual Report, which is expected to be made available to us after that date. Other information does not include the consolidated financial statements and our Auditors report thereon Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is How the matter was addressed in the audit We performed audit procedures on existence of trade accounts receivable, which include but are not limited to control testing on sales transactions and tracing back to documents, trade accounts receivable confirmations and subsequent receipt testing of bank payments. Assessing the valuation of trade accounts receivable requires judgment and we have challenged the assumptions used to calculate the trade accounts receivable impairment amount, notably through detailed analysis of ageing of receivables, assessment of significant overdue individual trade accounts receivable and assessing specific local risks, combined with correspondences and legal documentation, where applicable. a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of the directors for the financial statements The directors are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act, 1963 (Act 179), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 13

14 AYRTON DRUG INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF AYRTON DRUG MANUFACTURING LIMITED In preparing the financial statements, the directors are responsible for assessing the company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the financial reporting processes. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 14

15 Financial Statements - June 2017 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF AYRTON DRUG MANUFACTURING LIMITED Obtain sufficient appropriate audit evidence regarding the financial information of the company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on other legal and regulatory requirements The Companies Act, 1963 (Act 179) requires that in carrying out our audit we consider and report on the following matters. We confirm that, Signed by Kwadwo Mpeani Brantuo (ICAG/P/1152) For and on behalf of Ernst & Young (ICAG/F/2017/126) Chartered Accountants Accra, Ghana Date i. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; ii. In our opinion, proper books of account have been kept by the company so far as appears from our examination of those books; and iii. The statement of financial position and the profit or loss (statement of income) of the company are in agreement with the books of account. 15

16 FINANCIAL STATEMENTS 2017

17 Financial Statements - June 2017 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017 Note As at As at 30/06/ /06/2016 Non-current assets Property, plant and equipment 3 6,780,467 7,238,718 Prepaid leasehold land 4 373, ,976 Intangible assets 5 17,062 53,418 Deferred tax ,257-7,591,048 7,674,112 Current assets Inventories 6 11,351,244 10,232,051 Trade and other accounts receivable 7 10,984,019 8,640,993 Income tax receivable ,803 Cash and bank balances 8 125, ,380 22,460,939 19,593,227 TOTAL ASSETS 30,051,987 27,267,339 EQUITY AND LIABILITIES Equity Stated capital 9 4,475,000 4,475,000 Other reserves 9 1,739,436 1,739,436 Retained earnings 11,559,542 9,273,567 17,773,978 15,488,003 Non-current liabilities Deferred tax ,459 Current liabilities Trade and other accounts payable 10 5,086,720 6,500,985 Short-term borrowings 12 6,245,018 5,123,892 Income tax payable ,271 - Total liabilities 12,278,009 11,779,336 TOTAL EQUITY AND LIABILITIES 30,051,987 27,267,339 Director Date: Director Date: The notes 1 to 27 form an integral part of these financial statements. 17

18 AYRTON DRUG STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Notes 30/06/ /06/2016 Revenue 13 35,016,640 38,772,241 Cost of sales 14 (16,773,518) (21,018,854) Gross profit 18,243,122 17,753,387 Other income ,896 1,109,352 Selling and distribution costs 16 (4,896,998) (5,549,641) Administrative expenses 17 (9,065,992) (7,854,153) Operating profit 4,474,028 5,458,945 Finance costs 18 (1,206,109) (2,215,182) Profit before tax 3,267,919 3,243,763 Income tax expense 11 (981,944) (645,522) Profit for the year 2,285,975 2,598,241 Other comprehensive income - - Total comprehensive income 2,285,975 2,598,241 Basic and diluted earnings per share The notes 1 to 27 form an integral part of these financial statements. 18

19 Financial Statements - June 2017 STATEMENT OF CHANGES IN EQUITY Stated Retained Other capital earnings reserves (Note 9a) (Note 9b) Total Balance at 1 July ,475,000 9,273,567 1,739,436 15,488,003 Profit for the year - 2,285,975-2,285,975 Balance at 30 June ,475,000 11,559,542 1,739,436 17,773,978 Balance at 1 July ,475,000 6,675,326 1,739,436 12,889,762 Profit for the year - 2,598,241-2,598,241 Balance at 30 June ,475,000 9,273,567 1,739,436 15,488,003 The notes 1 to 27 form an integral part of these financial statements. 19

20 AYRTON DRUG STATEMENT OF CASH FLOWS Notes 30/06/ /06/2016 Operating activities Operating profit before tax 3,267,919 3,243,763 Adjustment Depreciation and amortisation 1,499,951 1,426,034 Write off of stock 468, ,669 Bad debts written off 283,963 - Unrealised exchange loss/(gain) 47,456 (580,894) Profit on disposal of property plant and equipment (34,500) (26,729) Interest income - (750) Interest expense 1,206,109 2,215,182 Operating cash flow before working capital changes 6,739,297 6,790,275 (increase) /decrease in inventories (1,587,593) 1,010,730 (increase)/decrease in trade and other accounts receivable (2,626,987) 1,211,849 Decrease in trade and other accounts payable (1,464,722) (2,848,415) Operating cash flow before interest and tax 1,059,995 6,164,439 Interest received Interest paid (1,206,109) (2,215,182) Income tax paid 11 (201,586) (307,445) Net (used in) /cash flows from operating activities (347,700) 3,642,562 Investing activities Purchase of property, plant and equipment 3 (996,630) (961,661) Proceeds from disposal of property, plant and equipment 34,500 95,666 Net cash flows used in investing activities (962,130) (865,995) Net (decrease)/increase in cash and cash equivalents (1,309,830) 2,776,567 Net foreign exchange difference on cash and cash equivalents 3,000 3,571 Cash and cash equivalents at beginning of the period (4,812,512) (7,592,650) Cash and cash equivalents at close of the period** 8 (6,119,342) (4,812,512) **Cash and cash equivalents at close of the current year are stated net of bank overdraft (short-term borrowing). The notes 1 to 27 form an integral part of these financial statements 20

21 ALCOHOL FREE

22 AYRTON DRUG NOTES TO THE FINANCIAL STATEMENTS 1. CORPORATE INFORMATION The financial statements of Ayrton Drug Manufacturing Limited for the year ended 30 June 2017 were authorised for issue in accordance with a resolution of the directors on 18 October 2017 Ayrton Drug Manufacturing Limited is a company registered and incorporated in Ghana under the Companies Act, 1963 (Act 179) as a limited liability company whose shares are publicly traded. The registered office is located at B1/24 Abeka Road, Tesano in Accra. The company is a subsidiary of Dannex Limited whose registered office is in Ghana when it acquired 53.47% of Adcock Ingram s (former parent) shares in November The company is engaged in the manufacture as well as import and supply of pharmaceutical products in West Africa. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1. Basis of preparation The financial statements have been prepared on a historical cost basis unless otherwise indicated. The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and also in a manner required by the Companies Act, 1963 (Act 179). The financial statements are prepared on a going concern basis Functional and reporting currency The financial statements are presented in Ghana Cedis () except when otherwise indicated. The Ghana Cedi is the functional and reporting currency of the company Foreign currencies translations Transactions in foreign currencies are measured and recorded on initial recognition in the functional currency at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate prevailing at the reporting date. At the reporting date non-monetary items at historical cost are translated using the exchange rates as at the dates of the initial transactions Leases Finance leases that transfer to the company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit and loss and other comprehensive income. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. No finance leases were entered into/existed at the reporting dates. Prepayments made with regard to leasehold land leased under operating leases are recognised at cost and amortised over the lease term. The current prepayment for leasehold land is amortised over a lease term of 50 years Property, plant and equipment The company recognises an item of property, plant and equipment (PPE) as an asset when it is probable that future economic benefits will flow to it and the cost can be reliably measured by the company. Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Depreciation is provided on the depreciable amount of each component of property, plant and equipment on a straight-line basis over the anticipated useful life of the asset. When significant parts of property, plant and equipment are required to be replaced in intervals, the company recognises such parts as individual assets with specific useful lives and depreciated respectively. The current annual depreciation rates for each class of property, 22

23 Financial Statements - June 2017 NOTES TO THE FINANCIAL STATEMENTS plant and equipment are as follows: Leasehold land Factory buildings 3 Plant and equipment Laboratory, equipment and furniture Office furniture and equipment Motor vehicles and bicycles Computer and accessories Over the lease term% Medical books 8.5 Costs associated with day-today servicing and maintenance of assets is expensed as incurred. Subsequent expenditure is capitalised if it is probable that future economic benefits associated with the item will flow to the company. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is recognised in profit or loss in the year the item is derecognised. Residual values, useful lives and methods of depreciation for property, plant and equipment are reviewed, and adjusted prospectively if appropriate, at each financial year end. Judgments are utilised in determining the useful lives (depreciation and amortisation rates) of these assets. These financial statements have, in management s opinion, been properly prepared within reasonable limits of materiality and within the framework of the summarised accounting policies. 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.6. Inventories Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Costs incurred in bringing each product to its present location and conditions are accounted for as follows: Raw materials are measured at the weighted average cost method. Finished goods and work in progress comprises the cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Finished goods are also measured at the weighted average cost method Financial Assets Initial recognition Financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace (regular way purchases) are recognised on the trade date, i.e., the date that the company commits to purchase or sale of the asset. The company s financial assets include cash, short term-term deposits, trade and other accounts receivable and loans and other accounts receivable. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below: Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise of cash at bank and on hand and short-term deposits with a maturity of three months or less. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts which are repayable on demand and which form an integral part of the company s cash management. Cash and cash equivalents are measured subsequently at amortised cost. Loans and accounts receivable Loans and accounts receivables are non-derivative financial assets with 23

24 AYRTON DRUG NOTES TO THE FINANCIAL STATEMENTS fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in the statement of profit or loss and other comprehensive income. The losses arising from impairment are recognised in the statement of profit or loss and other comprehensive income in finance costs for loans and in cost of sales or other operating expenses for receivables. Loans and accounts receivable include trade and other accounts receivable. Derecognition of financial assets A financial asset (or where applicable a part of a financial asset or part of similar financial assets) is derecognised when: the rights to receive cash flows from the asset have expired; or the company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the company has transferred substantially all risks and rewards of the asset, or (b) the company has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset. When the company has transferred its rights to receive cash flows from an asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under the passthrough arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognised to the extent of the company s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the company could be required to repay. When continuing involvement takes the form of a written and/ or purchased option (including a cash settled option or similar provision) on the transferred asset, the extent of the company s continuing involvement is the amount of the transferred asset that the company may repurchase, except that in the case of a written put option (including a cash settled option or similar provision) on an asset measured at fair value, the extent of the company s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of financial assets The company assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as change in arrears or economic conditions that correlate with defaults. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. 24

25 Financial Statements - June 2017 NOTES TO THE FINANCIAL STATEMENTS If a write off is later recovered, the recovery is credited to the statement of profit or loss and other comprehensive income. 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.8. Financial liabilities Initial recognition Financial liabilities are recognised initially at fair value and in the case of loans and borrowings and payables, directly attributable to transaction costs. Ayrton Drug Manufacturing Limited s financial liabilities include trade and other accounts payable, bank overdraft, loans and borrowings. Subsequent measurement The measurement of financial liabilities depends on their classifications as follows: Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Liabilities for trade and other amounts payable and accounts payable to related parties are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised as well as through the amortisation process. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability and the difference in the respective carrying amounts is recognised in the statement of profit or loss and other comprehensive income Employee benefits The Company contributes to the defined Contribution Scheme (the Social Security Fund) on behalf the of employees. Social security contributions This is a National Pension Scheme under which the company pays 13% of employees basic monthly salaries to a state managed Social Security Fund for the benefit of the employees. All employer contributions are charged to the statement of profit or loss and other comprehensive income as incurred and included under employee benefits. Employees contribute 5.5% of basic salaries to the Fund. Provident Fund Employees contribute a minimum of 5% of their basic salary and the employer contributes the 5% in to provident fund. This is a defined Contribution Scheme Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and sales taxes or duty. The company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The company has concluded that it is acting as a principal in all of its revenue arrangements. Sale of goods Revenue from the sale of goods is recognised when the significant risk and rewards of ownership have passed to the buyer, usually on delivery of the goods Taxation a. Income tax Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in shareholders equity or other comprehensive income, in which case it is recognised in shareholders equity or other comprehensive income. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the 25

26 AYRTON DRUG NOTES TO THE FINANCIAL STATEMENTS amount are those that are enacted or substantively enacted by the reporting date. Current tax assets and liabilities are offset when the Company intends to settle on net basis and the legal right to set-off exists. b. Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except when the deferred income tax liability arises from initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit. 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Taxation (continued) b. Deferred income tax (continued) Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognised directly in equity is recognised in equity or other comprehensive income and not in statement of profit or loss. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. c. Value Added Tax (VAT) Revenues, expenses and assets are recognised net of the amount of VAT except where the VAT incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. The net amount of VAT recoverable from, or payable to, the Ghana Revenue Authority is included as part of receivables or payables in the statement of financial position Intangible assets Intangible assets acquired are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the statement of profit or loss and other comprehensive income in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. There are no indefinite useful life intangible assets. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. The current annual amortisation rates for each class of intangibles are as follows: 26

27 Financial Statements - June 2017 NOTES TO THE FINANCIAL STATEMENTS % Trademark 10 Computer software 33.3 Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of estimates and assumptions and judgments The preparation of the financial statements in conformity with International Financial Reporting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenditure during the year. Actual results could differ from those estimates. In the process of applying the company s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the financial statements: Accounts receivable The allowance for doubtful accounts involves management judgment and review of individual receivable balances based on an individual customer s prior payment record, current economic trends and analysis of historical bad debts of a similar type. Property, plant and equipment and intangible assets Management uses judgments when determining the useful lives (depreciation and amortisation rates) of these assets. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur. Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm s length for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. Inventories Net realisable value tests are performed at each reporting date and represent the estimated future sales price of the product the entity expects to realise when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, 27